Stricter enforcement of the DBA law: is nearshoring an option?

Starting January 2025, the situation will change for IT service providers who hire freelancers. The Dutch Tax Authority will begin enforcing the Deregulation of Labor Relations Act (DBA), which could lead to significant financial consequences for organizations. Companies with flexible IT needs, struggling with the complexities of the DBA law and wishing to avoid potential back taxes, corrections, and fines, will start considering their options. Are there smart and easy alternatives that also offer flexibility? Let’s take a closer look at nearshoring.

For IT-related tasks, organizations often rely on self-employed professionals, also known as freelancers. They are typically hired for (temporary) projects that require specialized knowledge. Upon completing such a project, the freelancer submits an invoice for the work performed, and the client does not pay income tax or social security contributions on the services provided.

Freelancer or employee?

It sometimes happens that an organization hires a freelancer, but the working relationship in practice exhibits more characteristics of an employment contract. This occurs when the freelancer is largely dependent on a single client, has little control over working hours, and there is a hierarchical relationship between the client and the freelancer. In such cases, the tax authorities consider it a case of pseudo self-employment, meaning the freelancer is effectively an employee.

If that’s the case, it has several consequences. First, the client will be required to pay income tax and social security contributions for the services rendered. Additionally, labor laws will apply to the freelancer, meaning they will be entitled to benefits such as sick pay, pension contributions, and vacation days. This is outlined in the Deregulation of Labor Relations Act (DBA), which aims to combat pseudo self-employment and provide more clarity to employers and workers about the nature of their employment relationship.

Enforcement of the DBA law starting in 2025

Starting January 1, 2025, the Dutch Tax Authority will actively enforce the DBA law. If the Tax Authority determines that there is a case of pseudo self-employment, no fines will be imposed initially. Organizations will have the opportunity to adjust the situation during the transition year of 2025. However, the Tax Authority may still impose back taxes.

In practice, it can be difficult for an organization to determine whether or not there is a case of pseudo self-employment when hiring a freelancer. The Tax Authority always has the final say. If an organization has misjudged the situation, it could result in extensive administrative hassle and, after 2025, even lead to fines.

Nearshoring as a solution

For organizations looking to avoid potential future issues related to the DBA law, there is a solution in the form of nearshoring, which shares similarities with offshoring. In the case of Western European countries, offshoring refers to outsourcing work to countries such as China, India, and Pakistan. With nearshoring, the work is outsourced to a partner in a nearby country, often within the same time zone. For Western European countries, Spain, Portugal, and Romania are common nearshore locations. One reason for choosing nearshoring is the good balance between hourly rates and the quality of the delivered work. By nearshoring work to an IT partner abroad, you no longer have to deal with Dutch DBA legislation. Additionally, you no longer need to worry about necessary insurance for freelancers or intellectual property related to software development.

Benefits of nearshoring compared to freelancers

As a form of labor outsourcing, nearshoring has significantly increased in popularity in recent years. More and more Dutch companies are turning to IT specialists in nearby European countries. There are several reasons for this, which we will outline below.

• No Dutch legislation. As mentioned earlier in this article, with nearshoring, you no longer have to deal with complex laws and regulations regarding hiring freelancers. This saves a lot of time and effort. The organization can fully focus on strategic issues.

• Lower hourly rates. Often, nearshoring hourly rates in nearby countries are significantly lower than those of local freelancers, resulting in substantial cost savings without compromising the quality of work.

• Ensuring continuity. By working with a nearshore team instead of an individual freelancer, continuity is ensured. If a team member becomes unavailable, the work can easily be taken over by other team members, ensuring that projects continue without interruption.

• Similar work culture. The work culture in Eastern and Southern European countries shares many similarities with the Netherlands and local freelancers. Employees in these regions work disciplined and focus on executing tasks with many similarities in their approach to work and communication, including proactive thinking and providing feedback on process progress. This results in high-quality deliverables.

• Comparable time zones. Nowadays, we are all accustomed to working remotely with colleagues, both locally and from a distance. When outsourcing work to another country in Europe, the time differences are typically no more than two hours. This means that local and remote teams are working at almost the same time, which facilitates communication and collaboration.

Nearshoring with NetRom Software

Want to completely avoid the complicated and opaque Dutch DBA legislation? NetRom Software offers high-quality software development in teams that collaborate with your team. With over 500 highly skilled IT experts working from two modern delivery centers in Romania, NetRom provides a structured and stimulating environment that ensures continuity and quality for your IT projects.

NetRom creates a positive work environment for its staff with excellent working conditions. This leads to satisfied employees who are willing to go the extra mile and experience low turnover. Thanks to the years of experience our employees have at NetRom and with our clients, there is a vast internal knowledge base that is of great value to both our existing and new clients.

In addition to focusing on our staff, NetRom also devotes significant time and attention to optimizing communication with our clients. The advantage is that Romania is in the same time zone as the Netherlands, and the IT specialists, who speak excellent English, share a Western European mindset and working approach. Despite working remotely, it is customary at NetRom for the client and development team to meet in person at least twice a year.

All of these factors together ensure smooth collaboration with the client and successful execution of projects, some of which have lasted for more than 15 years.

Want to know more about the benefits of nearshoring?

Invest in a future-proof solution for your IT challenges. With NetRom as your nearshoring partner, you are guaranteed high-quality IT services, without the concerns that come with the new DBA enforcement. Make a smart choice and take the step towards a worry-free IT future with NetRom today.

Read more about our services here or request an information package without obligation.

Looking for reliable software development services?
See how we can help.